Optimal Fiscal and Monetary Policy with Costly Wage Bargaining

The provided content discusses fiscal and monetary policy, stakeholder analysis, and business environment. Specifically, it highlights the equivalence results of optimal fiscal and monetary policies (Correia et al., 2008). The importance of stakeholders in organizational decision-making is also emphasized, as well as the need to understand the different market structures that exist. Additionally, the role of the business environment in shaping entrepreneurial decisions is explored (Björklund, 2011; Brown et al., 2005). Overall, this content provides insights into the interplay between fiscal and monetary policy, stakeholder engagement, and the business environment.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Different business organizations......................................................................................1
1.2 Key stakeholders of British Airways and meeting their objectives.................................2
1.3 Accomplishing responsibilities of different stakeholders................................................3
2.1 Economic system attempting to allocate resources..........................................................4
2.2 Impact of fiscal and monetary policy on BA....................................................................5
2.3 Impact of competition policy and regulatory mechanism on BA.....................................6
TASK 2............................................................................................................................................7
3.1 Market structures determining pricing and output decisions for BA...............................7
3.2 Different ways in which market forces shape organizational responses..........................7
3.3 Business and cultural environment of BA........................................................................8
4.1 Significance of international trade to BA.........................................................................9
4.2 Impact of global factors on BA........................................................................................9
4.3 Impact of European Union on BA..................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
1

INTRODUCTION
Business environment is considered as all internal and external forces which majorly
affect the functioning of business organization. It consists of internal environment factors where
business is affected by its own policies, rules and regulations. Further, it has external
environment which significantly affects the business organization from outside (Stonehouse and
et.al., 2009). In this context, this present report is based on British Airways (BA) which is UK's
largest airline on the basis of fleet size. Organization has started a unique feature of cargo service
which will increase more of its revenue and productivity. This present report will focus on
different stakeholders of British Airways and the way in which they respond to satisfy the
customer’s needs and wants. Further, this report will focus on the impact of fiscal and monetary
policy and the way they affect operations and functions of mentioned company.
TASK 1
1.1 Different business organizations
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Organization is considered as a social unit of employees which is generally structured
and managed to meet the needs of enterprise to achieve their goals and objectives. Further,
organizations having management structure that evaluates the relationships between the different
activities and the members, responsibilities and authority to carry out different tasks within
business organization. Each and every organization has their own plans, policies, rules and
regulations and this helps them to achieve their corporate goals and objectives. There are
different types of organizations which are explained as below: Sole Proprietorship firm- Sole proprietor firm consists of a single person who generally
performs all the business activities. Further, these sole proprietors have low startup costs
along with the low operational overhead. In UK, these sole proprietors are considered as
the leaders of market as they perform a wide range of activities in order to satisfy the
customer’s demand (Zhu and et.al., 2012). Advantage of this type of organization is that
they have the total control over business regulations and also keep all the profits. Franchisee- In this type of firm, franchises gives permission to sale their products and
services and also trades them under a particular name. One who has taken franchisee gets
benefits as they are working and operating under a well renounced company’s brand.
Moreover, half of the retail corporate in UK is operating their business activities through
franchisee system only. Public Limited Company- For being a public limited company, organization has to get
registered under Companies Act, 1980. These firms have to get registered with a
minimum share capital and need to issue new shares to the public. These types of
companies have more advantage than private limited company. British Airways is a part
of this segment.
 Private Limited Company- Private limited company is the one which is operated by
couple of individuals (Adler and Gundersen, 2007). Further, these organizations aim at
maximizing their profits by extending their business ventures by reducing the cost of
their products and services.
Mission Vision Short term objectives Long term objectives
To become world's
most responsible and
Making its healthy
presence in
Providing excellent
quality and different
Eco friendly approach
to safeguard and
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reliable airline dominating countries
of the world
varieties of food to
clients
protect the
environment
To give travelers the
best facilities within
airlineGiving
sustainable job
opportunities to both
existing as well as
newly recruited
employees
Increasing market share
by attracting the
stakeholders
Increase number of
airlines for a major
route
1.2 Key stakeholders of British Airways and meeting their objectives
BA has different stakeholders and they have different needs and expectations from
company. They play a major role in increasing the brand image and revenue for the corporate.
Some of them are stated below: Employees- British Airways is considered as the largest airline in UK as they have
approximately 44000 employees. These employees know the goodwill of cited company
as they focus on providing productive services. These individuals have expectations
regarding their job security and better remuneration from British Airways. In this context,
BA accepts all these points and give them better pay along with different other facilities
(Li and Hewitt, 2008). Organization knows that if they take care of their employee's, then
they will surely take care of their passengers. Shareholder's- Being a plc, British Airways accepts general deposits from public either
by issuing new shares or by trading existing securities. Individuals who have invested
their valuable money in organization are considered as the shareholders of company.
Further, firm incurs sufficient profit every year so they would give healthy return on
capital through dividends.
 Customers- Passengers are considered as the asset for aviation industry. In this context,
organization considers the needs and wants of travelers and gives the best services to
their travelers (Dreher, 2005). This procedure helps the mentioned company to increase
their loyal customer base.
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Illustration 1: Stakeholders for organization
(Source: Do You Really Know Your Stakeholders? 2015)
 Creditors- Creditors are the loan providers to mentioned company. BA creditors are
banks, various corporate friends and financial institutions. Creditors want positive
response from BA as they have to return the specific amount within sufficient time
period. However, if organization failed to meet so, then their corporate image will be
affected.
1.3 Accomplishing responsibilities of different stakeholders
British Airways having responsibilities to satisfy the needs and demands of their potential
stakeholders in order to increase more of the revenue, productivity and brand image. Moreover,
British Airways is focusing on following points: Employees- BA is having responsibility to provide healthy working environment to their
talented employees. In order to meet this, mentioned company has skilled HR manager
who look towards the betterment and growth of their individuals. Further, HR manager
implies effective HRM policies that would look towards the employee's motivational
aspects which satisfies their individual as well organizational goals. Shareholders- BA can attract shareholders by publishing their annual reports and annual
accounts in different advertising sources (Madura, 2006). This will divert the public
minds towards organization and they can issue new or existing shares to them. Further,
with a healthy brand name and financial profit, individuals are automatically attracted
towards the corporate. Customers- As stated in the above topic, customers are their assets and BA has to satisfy
their needs in order to increase the productivity and revenue of firm. Mentioned company
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focuses on providing excellent services within and outside the plane. Further,
organization has effective CRM policy which helps them in taking necessary feedback
and suggestions.
 Creditors- In order to manage their cash, BA has different cash management techniques
which help them in clearing their loan amount. Further, it is the utmost priority of
organization to do so as if they failed then from the next time, banks and corporate
friends will hesitate in providing long term and short term loans (Chen, Liu and Cheung,
2014).
2.1 Economic systems attempting to allocate resources
An economic system is treated as a system of production and exchange of goods and
services along with the allocation of the resources in the country. Economy is the country where
the cited firm having its operations and it can impact the organization performance upto a great
extent. Different economies help BA to allocate the resources in a proper manner. Some of them
are explained below:
 Free enterprise economy- It is a type of economy where BA can function their business
activities either with some or no government restrictions. Further, if some restrictions
exist then it generally does not affect the corporate functioning. Under this economy
system, a problem persists where there is a single organization who influences the whole
industry. Moreover, having such a brand image, BA focuses on satisfying their
customers’ needs at affordable prices.
 Mixed economy- It is a type of economy where government restrictions exist in the form
of different monetary and fiscal policies. This is implemented by government to control
the financial flow within country (Ditlev-Simonsen and Wenstøp, 2013). UK government
adopts this policy where firm has the right to function their business activities and local
bodies implied restrictions to make the market stable. Moreover, for getting the support
of government, BA forms their corporate objectives by considering these government
rules and regulations.
 Command economy- This is a type of economy where government has complete
command over economy in order to allocate the resources effectively. UK government
takes effective decision of fuel price, tax on food, etc. Government also charges service
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tax for every seat confirmation. By considering all these taxes, fair price for a particular
distance increases which simultaneously develops the burden on individuals to fly.
2.2 Impact of fiscal and monetary policy on BA
Monetary and fiscal policies have their own significance on nation's economic activities.
Monetary policy is concerned with the management of interest rates and the total supply of
money in circulation. This policy is carried out by central banks such as the Federal Reserve,
National bank, etc. On the contrary, there is fiscal policy where government adjusts the level of
spending by individuals in order to effectively monitor the national economy (Swanson, 2004).
Different steps taken by government in order to identify different economic positions are:
 Changes in interest rates- When government changes the interest rate with the help of
different monetary policy, it affects the functioning of British Airways. If interest rate
gets high then BA will face major problem because it will lead to increase in the cost of
capital (Li and Hewitt, 2008). In relation to this, travelers will reduce traveling that would
decrease the organization’s turnover and profit.
Illustration 2: Fiscal and monetary policy
(Source: Fiscal Policy vs. Monetary Policy, 2015)
 Changes in tax rates- This is a part of fiscal policy where government affects BA
activities from different viewpoints. For instance, if tax rates are reduced then BA will be
in core advantage and they will be able to give best services without any change in the
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price to their passengers. This will further help them in selling more air tickets at low
price (Fiscal Policy vs. Monetary Policy, 2015).
2.3 Impact of competition policy and regulatory mechanism on BA
British Airways is considered as the largest airline in UK in terms of their fleet sizes as
they have approximately 300 passengers in numbers at a time. Even due to this, organization
faces a stiff competition from their major competitors which have almost same amount of capital
and general specifications. Further, major competitors for BA are Jet Airways, Deutsche
Lufthansa AG, Japan Airlines Co. Ltd, etc. Competition law and policy is a part of Competition
Act, 1998 where competition policy generally affects the operations of mentioned company
(Palmer and Hartley, 2008). The impact of different prices set by the government affects the
aviation industry ticket sale and it can reduce the firm's efficiency in increasing more of the
customers base.
Further, in order to have a competitive advantage, cited airline has to frame their plans
and policies by considering other airline's policy. Further, BA implies policies by considering all
the cost and product factor and set an affordable price for the tickets which is easily purchased
by the individuals.
TASK 2
3.1 Market structures determining pricing and output decisions for BA
For different market segments, BA has to determine and implement different prices for
their products and services. Different market structures have been discussed below: Perfect competition market- Under perfect competition market, many organizations are
functioning in the same industry with a high level of competition. By considering this
fact, it is clear that there are no restrictions on entry and exit for the new firms (Brown,
Earle and Lup, 2005). Firms generate a certain amount of profit with having a large
competitor for the same product or service. Monopoly market- It is a type of market place where only two or more enterprise
dominates the whole industry. Further, there are large numbers of buyers who are
interested in organization’s product because they are unique and satisfy their demand
immensely. However, corporate imposes prices for the products and services in order to
increase their revenue without considering the individual’s income.
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Illustration 3: Different market structures
(Source: Market structures. 2015)
 Oligopoly market- Oligopoly market is a type of market where there are few sellers of
products and services that provides quality of products and services to customers and
simultaneously restricts the entry of new organization within same industry (Björklund,
2011). BA comes under this segment.
3.2 Different ways in which market forces shape organizational responses
BA has to identify and consider all the market forces in order to make effective strategic
decision for the achievement of their goals and objectives.
 Demand and supply- British Airways has to take effective supply decision when there is
peak season or so. Mentioned company has to enrooted couple of airlines if demand for
the particular place is high. This will help them to increase their customer base.
 Perception of customers- Mentioned firm has to consider the demand of customers
before implementing necessary rules and policies. Further, they have to consider all the
relative needs which individuals want before flying into airline. Further, cited company
should provide additional facilities to their travelers like different types of food and
drinks, Wi-Fi, etc.
 Innovative technologies- With all new innovation and changes within airline, mentioned
company can attract the minds of potential travelers (Kelliher and Bernadette Henderson,
2006). Further, with new changes and technologies, they will be giving a tough
competition to their competitors which will increase their market value and brand image.
 Cost and output- With more passengers, organization incurs more profit and
productivity. Further, quality of service rendered by British Airways helps passengers to
travel around the globe at an affordable price.
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 Price elasticity- This method is considered as a measure of relationship between a
change in the quantity demanded for a particular service and a change in its price. Price
elasticity of demand generally comes into use when discussing price sensitivity.
3.3 Business and cultural environment of BA
British Airways has to take effective decision regarding business and cultural
environment as these factors have a direct impact on the organization’s performance as well as
on its goodwill. These factors can be easily understood with the help of PEST analysis: Political- Political environment is linked with the government affairs that include various
policies and acts which affect the services of British Airways. Further, due to terrorist
attacks to mentioned company, it has stopped flights in certain countries. This leads to the
political fear that they might be the next victim (Correia, Nicolini and Teles, 2008). For
instance, Tesco PLC can make their policy considering this political situation. Economic- Economic factors are having a direct effect on BA operations as it constitutes
different factors like inflation rate, unemployment rate, inflation rate, etc. Furthermore,
global crisis in different countries affects the business activities of cited company as
travelers have nothing to spend for their journey. Social- Social and cultural influences for BA varies from country to country. Mentioned
company has to judge the perception of customers which will help them in determining
the social and environmental factors.
 Technological- With all new techniques and innovations, technology is upgrading at a
fast speed (Persson, Persson and Svensson, 2006). BA has to adjust them and make
relative changes in their functional activities in order to increase the quality of products
and reduce the cost of service.
4.1 Significance of international trade to BA
Support of government, decline in taxation rates and improved transportation has uplifted
the importance of international trade in a relative period or so. With international trade system,
any organization like BA can operate their operational activities either with low or no
government interventions. Further, mentioned company is playing its crucial role by enhancing
the international trade for SMEs. With the help of effective carriage facility, BA is responsible
for almost 50% of private sector’s turnover (Arseneau and Chugh, 2008). Moreover, cited
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company wanted to help BA by connecting new customers with SMEs globally. Further, with
increase in international trade, British Airways flies 750 flights that carry almost 35 million
travelers globally on yearly basis. Further, for drafting a new policy, UK Treasury department
has to evaluate some advantage for the same
Advantages:
 International trade help nation to have optimum use of all the available resources. And
BA should produce only those services which are best suited for the individuals living in
the country.
 Foreign trade leads to specialization and encourage the production of different types of
goods and services for different countries. At times, goods are produced at low rate
because of division of the labor in specific country.
4.2 Impact of global factors on BA
There are some global factors which affect the performance of British Airways either
globally or within home environment. Some global factors for BA are as follows: Exchange rates- This is a core global factor by which revenue of BA is affected.
Therefore, sudden change in exchange rate of UK as compared with other countries can
become a major threat for British Airways (Ekins and Lees, 2008). Global business environment- In order to improve their efficiency and productivity, BA
has to understand the business environment of different countries in which they have
their business and also in countries where they are planning to start their new venture. International competition- British Airways faces a stiff competition from their major
competitors like Deutsche Lufthansa AG, Japan Airlines Co. Ltd, Jet Airways, etc.
Further, if their competitors started increasing at the same rate then it will become
difficult for the mentioned company to reside.
 Taxes and Tariffs- If global market’s taxes and tariffs rates are relatively high then BA
will face difficulties in their operational activities in a particular country (De Vries,
2009). With this reason, corporate turnover will be affected and they will not be able to
generate profit for a relative period or so.
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4.3 Impact of European Union on BA
European Union is the single largest market in the world and it states that all members of
EU can freely conduct their business activities and trade practices throughout other member
states as well. Further, European Union comprises of some rules and regulations which member
countries have to maintain in order to seek and perform well in operating nations. Some major
policies taken by EU are employment, regional, educational and training, inflation, etc. (Ditlev-
Simonsen and Wenstøp, 2013). Moreover, British Airways have to consider all these policies
which are implemented by EU and if mentioned company got failed in doing so then they will be
under a common law of violating EU’s agreement. Further, there are different types of policies
which are constituted in the EU and are categorized in:
 Agriculture and food
 Cross cutting polices
 Culture, education and youth
 Economic, finance and tax
CONCLUSION
From the above report, it is clearly inferred that British Airways is a leading airline
industry in UK which has its operations all around the world. Further, this present report states
BA’s vision, mission with all its short term and long term objectives. It has been also concluded
that changes in interest and taxation rates also affect the operations of BA. This report also
analyzes the core stakeholders of BA namely shareholders, employees, customers and
organization has to satisfy their needs in a precise manner. Further, this report showcases the
impact of global factors like international competitiveness and business environment which can
significantly affect the operational activities for BA.
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